MeadWestvaco Reports Strong Second Quarter Profit Growth
Press release from the issuing company
Wednesday August 1 -- RICHMOND, Va.-- MeadWestvaco Corporation today reported net income for the second quarter of $32 million, or $0.17 per share. Included in the second quarter results were after-tax restructuring charges of $5 million, or $0.03 per share, primarily related to employee separation costs and facility closures, and after-tax one-time costs of $5 million, or $0.03 per share, related to the company's cost initiative. Sales in the second quarter of 2007 were $1.71 billion, an increase of 9% compared to sales of $1.57 billion in the second quarter of 2006.
Profit from MeadWestvaco's primary business segments increased 20% to $149 million in the second quarter of 2007 from $124 million in the second quarter of 2006. In 2007, higher selling prices, improved mix and productivity, as well as the results of Calmar, the company's plastic dispensing and sprayer technology business, more than offset lower volume and higher costs for energy, raw materials and freight.
"MeadWestvaco's strong profit growth in the second quarter is further proof that our packaging strategy is working," said John A. Luke, Jr., chairman and chief executive officer of MeadWestvaco. "We delivered solid results for our shareholders, especially in our mill-based packaging business, where gains in pricing and product mix reflect continued good demand for our packaging solutions. With our strong momentum and ongoing productivity actions, we are well on track to deliver better performance in 2007 and beyond."
2006 Quarterly Comparison
In the second quarter of 2006, MeadWestvaco reported a loss of $7 million, or $0.04 per share. Included in the loss were after-tax restructuring charges of $37 million, or $0.20 per share, primarily related to the permanent shutdown of two previously idled paperboard machines as well as employee separation costs. In addition, the company incurred after-tax one-time costs of $6 million, or $0.04 per share, related to the company's cost initiative. Also included in the results was an after-tax gain of $13 million, or $0.07 per share, from the sale of a note received as part of the consideration for the sale of the printing and writing papers business in 2005.
In the Packaging Resources segment, profit in the second quarter of 2007 increased 38% to $90 million compared to $65 million in 2006. Sales in the second quarter of 2007 grew 3% to $773 million compared to $748 million in 2006. Volume growth in the company's higher value paperboard grades remained strong with year-over-year shipments of tobacco and liquid aseptic packaging increasing 23% and 5%, respectively. Key paperboard packaging pricing improved by 5%, reflecting the company's ongoing pricing actions across its lines of business to help offset inflationary costs for raw materials. In the quarter, improved price, mix and productivity more than offset lower volumes and higher costs for wood, other raw materials and freight.
In the Consumer Solutions segment, profit in the second quarter of 2007 was $24 million compared to $23 million in 2006, a 4% increase. Sales in the second quarter of 2007 were $595 million compared to $498 million in 2006. Improved results during the second quarter reflect the inclusion of Calmar, which was acquired in July 2006, as well as increased profitability in the beverage and healthcare businesses and productivity actions across the segment. Excluding Calmar, volumes were lower due primarily to the media packaging business, which continues to be challenged by significant market-related declines in global CD music volumes.
Consumer & Office Products
In the Consumer & Office Products segment, profit in the second quarter of 2007 was $24 million compared to $17 million in 2006, a 41% increase. Sales in the second quarter of 2007 were $267 million compared to $260 million in 2006. An enhanced product mix from the company's focus on proprietary brands and products and improved manufacturing productivity more than offset lower volumes and higher costs for raw materials. The company's Five Star® consumer products line experienced a solid start to the back to school season. This segment continues to be impacted by Asian-based imported products.
In the Specialty Chemicals segment, profit in the second quarter of 2007 was $11 million compared to $19 million in 2006. Sales in the second quarter of 2007 were $127 million compared to $131 million in 2006. Improved pricing across all major product lines was more than offset by higher raw material costs, lower volumes and unfavorable mix in the pine chemicals business. In the pine chemicals business, volume declines were driven by severe weather in the Southwest where prolonged wet conditions resulted in decreased demand for asphalt-related products. In addition, the weak U.S. housing market negatively affected demand for certain higher value products used to produce building materials. In the carbon business, lower North American automotive sales, particularly truck and sport utility vehicles, continued to negatively impact volume.
Corporate and Other
Corporate and Other loss was $101 million in the second quarter of 2007 compared to $132 million in 2006. Contributing to the decreased loss in 2007 were restructuring charges and one-time costs that were $54 million lower in 2007 compared to 2006. In 2006, there was a $21 million gain from the sale of a note that was received as part of the consideration for the sale of the printing and writing papers business in 2005.
During the second quarter of 2007, MeadWestvaco established the Community Development and Land Management Group, which is focused on executing the company's land enhancement strategy. The company appointed 30-year real estate veteran Kenneth T. Seeger to lead this new group.
During the second quarter of 2007, prices for energy, raw materials and freight increased about $30 million over the prior year. Capital spending was $148 million in the first half of 2007 compared to $114 million in the first half of 2006, reflecting the addition of Calmar and its China expansion. Capital spending remained well below the level of depreciation for the comparable period.
Cash flow from operations was approximately $190 million for the first half of 2007 compared to $186 million in the same period last year.
The annual effective tax rate for 2007 is estimated to be approximately 32%.
On June 26, 2007, MeadWestvaco's Board of Directors declared a regular quarterly dividend of $0.23 per common share to be paid September 4, 2007, to shareholders of record at the close of business on August 3, 2007.
During the second quarter, MeadWestvaco repurchased 2,649,600 shares of common stock under its existing authorized share repurchase program to offset employee option exercises. The company's average per share price was $32.48 for a total cash expenditure of $86 million.
Outlook: Third Quarter 2007
For the third quarter of 2007, MeadWestvaco expects total profit from the primary business segments to improve compared to the prior year.
MeadWestvaco expects solid year-over-year segment profit improvement in its Packaging Resources segment. Backlogs are firm for the company's key paperboard products and the company anticipates running at full capacity for the quarter. Continued realizations of price and mix improvements are expected to be partially offset by continued input cost inflation. Modest volume growth in conjunction with improved productivity is expected to generate higher segment profit.
In the Consumer Solutions segment, MeadWestvaco expects modest year-over-year segment profit improvement. Several factors are expected to contribute to profit improvement, including strength in the beverage, healthcare and specialty media packaging businesses; continued solid performance in the spray and dispenser business as well as productivity actions already in place. The company expects continued market-related volume declines in standard media packaging, principally CD music.
In the Consumer & Office Products segment, MeadWestvaco expects segment profit to be similar to year-ago levels. Continued benefits from an improved product mix and better productivity will be partially offset by lower volumes and by higher costs for raw materials. Third quarter 2007 volumes will be slightly lower year-over-year due to the company's continued focus on proprietary products and to some volume that shifted into the third quarter of 2006 from the second quarter of 2006 due to the Northeast floods in June last year.
In the Specialty Chemicals segment, MeadWestvaco anticipates segment profit to be similar to year-ago levels. Volume growth in ink- and asphalt-related pine chemicals and continued price improvement across all product lines will be offset by volume declines in carbon and building materials products, and by continued input cost inflation.
MeadWestvaco is auctioning 290,000 acres of forestland located in Alabama, Georgia and West Virginia. MeadWestvaco intends to return the net proceeds from these sales to shareholders. After these sales, the company will continue to own over 800,000 acres of forestland principally located in South Carolina, Virginia and West Virginia. As part of its ongoing land strategy, MeadWestvaco is master planning approximately 72,000 acres in South Carolina and is continuing to segment the rest of its land holdings for best uses.
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